NORTH AMERICA – Pantheon, the $24bn (€18.3bn) private equity fund of funds manager, has hired Michael Riak for its newly created role of head of US defined contribution (DC).

Riak, who worked for 17 years with Verizon Communications, ultimately as its director of savings & affiliate plans, will lead the implementation of Pantheon's initiative to bring unlisted private equity to the world of DC investments.

US DC provision falls largely into two structures: Individual Retirement Accounts (IRAs) and employer-provided '401k' plans.

Pantheon will initially aim for the 401k market, as these plans have trustees and are seeing more and more contributions head into 'mini-DB' default funds – customised target-date strategies that often include a broader range of assets – which the firm sees as the best fit for private equity.

Kevin Albert, Pantheon's global head of business development and client services, told IPE there were "well over 100" trust-based 401k plans with the size and sophistication to make use of private equity, and reported healthy demand.

There is a pressing need for private equity and DC to come together, he added.

Savers are often not contributing enough and being too conservative with their risk taking – the main reasons why auto-enrolment and auto-increase had been built into the 401k system, as well as the 'mini-DB' default funds; and private equity needs to find new sources of funds as pension provision moves away from collective defined benefit schemes (DB).

"The diminution of DB pension funds has had an effect on private equity fundraising already, including on us at Pantheon," he said.

Riak helped Verizon become the first non-financial US plan sponsor to offer private real estate to DC participants, and brought asset classes such as global listed infrastructure, global high yield and commodities into its target-date strategies.

Pantheon will use a refined version of the independently audited valuation methodology it deploys for its London-listed private equity fund of funds vehicle, Pantheon International Participations, to provide daily pricing for its DC offering, which will be a commingled trust.

Discussion is ongoing as to whether investors will get monthly or weekly liquidity.

Contributions coming into the private equity trust will initially be invested in what Albert called a 'replicator strategy' that targets equity-market returns to avoid a cash drag while the fund sources investments.

As the funds are invested, 20% will be retained in this replicator strategy as a liquidity buffer to meet potential redemption requests.

The fund will also have the capability to gate investors for up to six months.

In practice, Albert said the only real threat to liquidity would come from a plan electing to redeem entirely from the fund, and that Pantheon would probably require a six-month notice period for such a decision.

Asked how much time Pantheon would have to restore the 20% liquidity buffer in the event of losses in the replicator strategy, Albert said the aim was to avoid major losses in this portfolio, but declined to give details on how this might be achieved.

While acknowledging the greater operational complexity of the initiative for DC, Albert said that while the fee structure would be different from the usual general partnership vehicle for DB schemes and Pantheon's listed product – there will be a flat management fee and no carried interest – the costs will "not be meaningfully different".

Albert said Pantheon hopes to secure its first US DC clients this year.

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